RHB lowers target price for KLCCP to RM8.43 on gloomy hotel outlook ahead

TheEdge Fri, May 08, 2020 10:45am - 3 years View Original


KUALA LUMPUR (May 8): RHB Investment Bank has lowered its target price on KLCCP Stapled Group after it posted a slight decline in its first quarter ended March 31, 2020 (1QFY20), as the Covid-19 outbreak took a toll on the hotel business, which is likely to continue seeing a decline in occupancy for a couple of quarters ahead.

RHB lowered its target price to RM8.43 (from RM8.55), after cutting its earnings forecast for FY20 to FY22 by 1% to 3%, it said in a research note today. It has maintained its “buy” call on the stock.

“We came away from the post-results release conference call with KLCCP Stapled still confident in its office segment but reiterate our concerns for the hospitality segment which is likely to be in losses for a large portion of the year. On a slightly positive note, the steady reopening of Suria KLCC post-movement control order (MCO) may prop up earnings, especially with the new space, but we are wary of reversion rates going forward,” RHB said.

For 1QFY20, KLCCP reported a 3.85% decline in net profit to RM176.88 million, from RM183.96 million a year earlier. Quarterly revenue was up by a marginal 0.32% to RM354.59 million, from RM353.45 million previously.

“While cost-containment measures such as the temporary closure of certain floors and reviews of contracts with external contractors have been in place at the Mandarin Oriental to uphold margins, we think occupancy rates will struggle for the rest of the year as fears on travel and being in crowded areas for events may linger post-MCO.

“Management agrees that the hotel [segment] is at risk of being in the red for a portion of the year. Regardless, we think that the office segment should be able to mitigate the poor performance of the hotel segment, albeit at a flattish growth rate moving forward,” RHB said.

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